In a mature basin such as the UKCS, most new developments require access to third party infrastructure in order to reach the shore. The MER UK Strategy expects that such access will be available in a timely manner, on fair and reasonable terms.
The Infrastructure Code of Practice (ICOP), the current incarnation of which was first introduced in 2004, guides negotiations for third-party access to oil and gas infrastructure on the UKCS by setting out good practice principles. It is a non- statutory, voluntary Code developed by Oil & Gas UK in consultation with a wide range of parties. It is accompanied by guidance notes issued by Oil & Gas UK and should be read in conjunction with guidance issued by the OGA on the way it anticipates using its statutory powers under the Energy Act 2011 to impose terms where parties are unable to reach agreement.
Both the ICOP and its accompanying guidance notes were last updated in 2012. They have now been updated again to reflect general improvements and changes to legislation, principally the transfer of powers from DECC/BEIS to the Oil and Gas Authority (OGA).
Changes to ICOP
The changes from the 2012 issue of ICOP are neither numerous nor extensive but some are significant:
- References to DECC have been updated to refer to the OGA, reflecting the transfer of powers in the Energy Act 2016.
- Section 2 of ICOP deals with the underlying legal framework. This has been amended to refer to the requirement for relevant persons (including holders of petroleum licences and owners of upstream petroleum infrastructure) to comply with the ‘principal objective’ introduced into UK law in 2015, of maximising the economic recovery of offshore UK petroleum, and also with the MER UK Strategy, published in 2016. The section notes that the MER UK Strategy expects that terms for access to infrastructure will be fair and reasonable, and will be agreed in a timely manner. The outcome from infrastructure access negotiations may also contribute to any hub strategies (as described in OGA Stewardship expectations) or wider area/regional plans developed in support of the MER UK Strategy.
- The paragraph dealing with competition law in Section 2 has been expanded. It refers to advice received from the Office of Fair Trading (OFT, the UK competition law regulator at the time) when ICOP was originally drafted in 2004. The advice indicated that ICOP did not appear to raise any competition concerns and appeared likely to meet its objective of increasing the usage of spare capacity, but the onus was on industry to ensure that implementation of ICOP complies with competition laws. The document notes that no significant issues have been raised in connection with competition law since ICOP was introduced, and so the original advice is still considered to be relevant. Paragraph 2(6) continues “More recently, the OFT’s successor, the Competition and Markets Authority (CMA) has commented, more generally, that it is ‘important to guard against the risk that unwarranted caution about the potential application of competition law chills beneficial collaboration, and the OGA reiterated the general position that EU and UK competition law are based on the principles of self-assessment, where the onus of determining if a particular activity is compliant with competition law rests with the individual businesses concerned’.
- A further reference to competition law is found in Section 8 on Timeliness which states “When a party believes that it will need to give consideration to competition law matters in connection with infrastructure access, having reviewed carefully the extent to which such consideration is necessary (see paragraph 2(6)), it is expected that this will be done in a timely manner and ideally prior to the commencement of any negotiations.”
- Section 9 has been simplified and re-ordered in a more logical manner
- In Section 11, the existing provision relating to the reservation of capacity for own use has been amended to reflect MER principles but with a relatively light touch – it states “While infrastructure owners should not, by virtue of their ownership, discriminate by giving special preference to particular companies or agents, they may make reasonable provision of capacity for their own use (refer to Annex C (6)), but overall should look to prioritise access which maximises the value of economically recoverable petroleum.”
- Companies are reminded in Section 13 to use industry standard forms and precedents as a basis to reduce complexity, wherever practical. (It should be noted that there are currently no UK industry standard forms or precedents for either construction and tie-in agreements (CTIAs) or transportation, processing, operations and services agreements (TPOSAs).
- The appendix summarising relevant legislation has been updated to refer to the OGA’s power to sanction for failure to provide information.
- The OFT’s 2004 letter which was annexed to earlier versions of the Code has been removed.
- The recently updated Commercial Code of Practice has been attached in place of the previous version.
Changes to the ICOP Guidance Notes
The Guidance Notes which accompany the ICOP are largely unchanged but the list of indicative terms for TPOSAs now makes specific reference to a mechanism for contributing to fuel and flare gas and to decommissioning liabilities with respect to the new facilities and to co-operation between the Infrastructure Owners and the Bona fide Enquirer for decommissioning of the Bona fide Enquirer’s facilities.
The changes to the Code demonstrate the sometimes awkward interaction of the new MER UK regime with existing regulatory rules. The statutory regime for access to infrastructure in the Energy Act 2011 expressly prohibits the OGA from imposing terms on an infrastructure owner unless satisfied that such terms will not prejudice “the conveying by the pipeline, or the processing by the facility, of the quantities of substances which the owner or an associate of the owner requires or may reasonably be expected to require”. It is difficult to reconcile this principle with the aim of MER UK to maximise the value of UK production which may require the infrastructure owner to cut back its own production in favour of the shipper.
The interaction of MER UK and competition law is also an uneasy one – the OGA has been at pains to stress that “unwarranted caution about the potential application of competition law” should not be permitted to chill beneficial collaboration, but what may seem unwarranted to one regulator may seem entirely rational to a party faced with the potential of investigation, and even significant fines, by another regulator. In the case of ICOP specifically, requests for joint provision of services can raise legitimate concerns on the part of the infrastructure owner.
The updated ICOP can be accessed here and the Oil & Gas UK Guidance Notes can be accessed here.